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The new formula will ensure that all children in all communities will have an opportunity to succeed.

The recently adopted school funding formula in the School Funding Reform Act of 2008 is the first step in the effort to end years of inequities in and disputes about state aid for our schools. Now, for the first time in a decade, one funding formula will be used to determine state aid to each of New Jersey’s 618 school districts.
Districts that have been short-changed for years as their property taxes escalated, districts with high rates of enrollment growth, and districts with rising numbers of at-risk students are finally on the road to receiving their fair share of state aid.

The new formula will ensure that all children in all communities will have an opportunity to succeed because their school districts will have the resources to prepare students for career and educational opportunities after high school.

A Long Road to Reform The debate around school funding equity has been ongoing since the Robinson v. Cahill era, which began in 1976 with the Supreme Court case. Over the last 30 years, the state has struggled to provide a thorough and efficient education for all of its students. The state’s last attempt at a school funding formula was in 1997, with the inception of the Comprehensive Education Improvement and Financing Act (CEIFA). However, the New Jersey Supreme Court declared CEIFA unconstitutional as it applied to the “Abbott” districts, the group of 31 urban districts that had been locked in litigation with the state for more than two decades over adequate resources for the low income children who resided within their boundaries.

The court held that the amount of aid provided in CEIFA was not based on any actual study of the needs of at-risk children or the costs of supplying the necessary programs, and so required an interim remedy. The state was ordered to provide what the court called per-pupil “parity aid,” an amount equal to the average annual amount spent for each child by the state’s wealthiest districts. In 1998, the court ruled that Abbott districts could also seek additional funding over and above parity to meet specialized needs.

Meanwhile, from the 1997-1998 through 2001-2002 school years, CEIFA determined the state aid entitlement for the non-Abbott districts. As the state began to experience budget difficulties in 2001, state aid for non-Abbotts was either held flat or provided as a simple percentage increase that did not recognize changes in enrollment or other demographic changes in the non-Abbott districts.

The result was a two-tiered funding system that continued to provide generous amounts of state funding to help students in Abbott districts, while a growing number of the at-risk children in the state, who live outside Abbott boundaries, were denied access to these same resources simply because of their zip codes.

During this period, many districts were undergoing significant demographic changes. Large housing developments were springing up in once-rural areas, drawing in young families with children who had to be educated. Suburban and exurban districts began to enroll more and more low-income children and children whose families did not speak English at home, and these students required additional resources. But with base aid numbers frozen in 2001 demographic data, it was impossible to shift state resources to meet the districts’ changing needs.

And as districts struggled to address these problems with diminished aid from the state, many people living in middle-income communities found themselves forced to pick up a larger and larger share of the cost of public education through local property tax increases.

Commissioner Davy poses with preschoolers in Newark. Under the new
formula, free preschool for at risk students will be extended beyond the
Special Needs districts

How the New Formula Works The DOE began working on a new formula in June of 2002. Three months later, the department signed a contract with Augenblick, Palaich and Associates, Inc. for consulting services. The department then convened three different professional judgment panels.

This work led to the October 2006 release of the Report on the Cost of Education and a round of stakeholder and legislative meetings throughout 2007. The department presented its proposed funding formula to the Legislature in December, 2007.

Passed in January of this year, the School Funding Reform Act of 2008 distributes approximately $7.8 billion in state aid to K-12 education for the 2008-09 school year, an increase of approximately $550 million.

Funding will be distributed through a foundation formula. The calculations are based on a per-pupil adequacy budget, reflecting an analysis of what it should cost to educate a child according to New Jersey’s standards in an efficiently-functioning K-12 school district. A base amount is set for elementary school students and is increased for middle school students, high school students and vocational school students, since it grows more expensive to meet students’ needs as they get older and vocational schools cost more to operate than traditional high schools.

Additional weights are added to the bases at the various grade levels for at-risk students (those eligible for free or reduced lunch), students with Limited English Proficiency (LEP) and special education students. A combination weight is calculated for students who are both at-risk and LEP. Because there are additional challenges in meeting students’ needs in a very poor district, the additional at-risk weight increases as the poverty concentration in a community increases. Because the cost of goods and services vary throughout the state, each district’s adequacy budget is adjusted by a geographic cost index.

Special Education Funding The formula also improves the way special education is funded in New Jersey. Under a method used by the federal government and many other states, each district’s adequacy budget for special education costs will be calculated by using a “census model” by multiplying the district’s total enrollment by the statewide average classification rate of 14.69 percent and by the statewide average special education excess cost.

One-third of each district’s base special education costs will be funded on a categorical basis, which means the district receives 100 percent funding for one-third of the special education costs calculated using the “census model,” and two-thirds will be funded on a wealth-equalized basis. This means that districts receive two-thirds of the special education costs calculated by the census model based on its relative wealth defined by property and income. The state will also reimburse all districts regardless of wealth for most of the extraordinary costs of providing special education programs for students with the most severe disabilities.

Calculating the District’s Fair Share Districts’ total adequacy budgets are supported by a combination of state and local funding. Under the formula, the calculation of each district’s local fair share is based on the wealth of each community as measured by aggregate income and property value. This is the same method of determining the fair local contribution as was used under CEIFA. As should be expected under an equitable system, wealthy municipalities will still be expected to pick up a larger share of the cost of public education in their districts than poorer communities, but every district will continue to receive state aid.

Another important aspect of the new process is that the demographic data on which it is based will be updated every year, and every three years, the department will update the adequacy budget resources and the estimate of costs on which it is based. In the intervening years, the adequacy budget costs will be inflated annually by the CPI. This will help us avoid situations in which the allocation of state aid doesn’t keep up with changing circumstances, resulting in inequities and imbalances.

Stabilizing Property Taxes Finally, the law enacting the formula also has a provision that will help stabilize property tax growth in some communities. Specifically, 120 districts currently spending above adequacy and contributing more than their fair share towards their educational costs will be required to use a portion of their state aid increases to offset their school tax levy increases. This provision in the formula responds directly to concerns about property taxes voiced by municipal officials and the public at large at the public hearings held during the development of the new formula.

State-Financed Preschool for At-Risk Children One of the most exciting aspects of the new funding law is the Governor’s commitment of state funds for high quality preschool for low income three- and four-year-olds throughout the state. The expansion will be phased in over time; the goal is to reach at least 90 percent of the eligible population within six years.

With all that we know about the significant impact that high-quality preschool can have on a child’s academic career, this is the single most productive step we can take in terms of improving education in New Jersey. Research and the department’s experience with the Abbott preschool program show that early preparation has very positive effects on literacy development, school readiness, and later success in school.

When at-risk children attend quality preschool, they enter kindergarten more ready to learn. At this level, the gap between these children and their more economically privileged classmates has been dramatically reduced. They have experienced the thrill that comes with understanding and achieving, and they are ready to move on to the next level.

Research has also shown that quality preschool for at-risk children translates not only into higher achievement levels at school but also gives a much better shot at success in life.

Moving Forward Two very clear principles will continue to guide the implementation of the new school funding formula as we move forward.

First, the department will continue to support the reforms for children that have been implemented successfully in the former Abbott districts. This formula responds to our constitutional responsibility to provide a “thorough and efficient education” to all of New Jersey’s children. Many of the former Abbotts are already among the highest-spending districts in the state, but no district is going to receive less money than it will receive in 2008-09 unless there are enrollment decreases over the next three years that exceed five percent.

Second, as Governor Corzine has directed, taxpayers throughout New Jersey need to be assured that their tax dollars are being spent effectively in all districts. In the past two years, the Legislature has given the department three very important tools to ensure that districts are being held accountable for their spending decisions: NJQSAC, the state’s new district monitoring system; CORE, the 2006 law that focused on increased education efficiency and responsibility; and the School District Fiscal Accountability Act.

The new funding formula complements these provisions by providing the commissioner with authority to withhold funds if the commissioner is not satisfied that all educational expenditures in the district will be spent effectively and efficiently in order to enable students to achieve the core curriculum content standards.

This new school funding formula does what it was expected to do: it accounts for the needs of all children in all communities. It is equitable, fair and based on need, not zip code. It is a true formula, one that has not been in place for a decade. It is a single formula that addresses years of inequity, while, at the same time, it provides children in New Jersey with the best opportunities to learn.